Make-take structure and market quality: Evidence from the U.S. options markets

Amber Anand, Jian Hua, Tim McCormick

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We examine the make-take structure, which compensates liquidity suppliers and charges liquidity demanders, in the options markets where it competes with a traditional structure that uses payments for order flow. Using the introduction of the make-take structure as an event, we find that execution costs (including fees) for liquidity demanders decline after the event for the affected options, that the make-take structure encourages market makers to improve quoted prices, and that brokers change their routing behavior to include fees in the routing decision. The decline in execution costs is consistent with the benefits of the increased quote competition from the make-take structure prevailing over the fees the structure charges to liquidity demanders.

Original languageEnglish (US)
Pages (from-to)3271-3290
Number of pages20
JournalManagement Science
Volume62
Issue number11
DOIs
StatePublished - Nov 1 2016

Fingerprint

Options markets
Market quality
Liquidity
Fees
Charge
Execution costs
Routing
Suppliers
Order flow
Payment
Broker
Market makers

Keywords

  • Maker-taker pricing
  • Microstructure
  • Open markets
  • Securities

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

Cite this

Make-take structure and market quality : Evidence from the U.S. options markets. / Anand, Amber; Hua, Jian; McCormick, Tim.

In: Management Science, Vol. 62, No. 11, 01.11.2016, p. 3271-3290.

Research output: Contribution to journalArticle

Anand, Amber ; Hua, Jian ; McCormick, Tim. / Make-take structure and market quality : Evidence from the U.S. options markets. In: Management Science. 2016 ; Vol. 62, No. 11. pp. 3271-3290.
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